You Don't Own Your Land

It's Sunday, August second. I was at a friend's place back when I lived in Atlanta earlier this year and they were showing me their backyard, and they pointed out this narrow strip of land along the back that they can't use because it's technically owned by the government. Not their property, even though it's inside what looks like their yard. And the strip doesn't just affect them, it runs across a bunch of people's backyards in a line, just this ribbon of government-owned land cutting through private property. Nobody's going to buy it because it's undeveloped, it's awkwardly shaped, and whoever bought it would need to pay taxes on a piece of land that's functionally useless. But my friend can't build on it, can't plant on it, can't do anything with it because it's not theirs, even though they mow the grass on it every week. That conversation sent me down a rabbit hole about how land ownership actually works in this country, and the deeper I went, the weirder it got. Because when you start pulling at the thread of "who decides this is yours," the whole concept of owning a piece of the Earth starts to feel a lot less solid than most people assume. When you buy a house, you get a deed, which is a legal document that says you own the property. A surveyor measures the boundaries, those measurements get recorded with the county, and from that point forward, that plot of land and whatever's built on it is yours. You can live on it, build on it, sell it, or pass it to your kids when you die. That's the version most people understand, and it's mostly accurate except for one detail that changes everything: you have to keep paying property taxes on it every year, and if you stop, the government takes it.

Property taxes are assessed annually by local governments based on the estimated value of your property, and they fund schools, roads, police, fire departments, and other municipal services. The average American homeowner pays somewhere around $2,500 to $3,000 per year in property taxes, though that varies wildly by state. New Jersey averages over $9,000. Hawaii averages under $2,000. But regardless of the number, the principle is the same everywhere: if you don't pay, the county can place a tax lien on your property, and if you still don't pay, they can seize it and sell it at a tax sale to recover the debt. You can own a house outright with no mortgage, live in it for thirty years, and lose it because you fell behind on a tax bill.

Which raises a question that most homeowners never think about: if the government can take your property for not paying an annual fee, do you actually own it, or are you leasing it from the government with extra steps? The deed says you own it. The tax code says your ownership is conditional on continued payments to the state. And on top of the taxes, the government retains the right of eminent domain, which means they can force you to sell your property for public use, a highway, a school, a utility project, as long as they pay you what they consider "fair market value." You don't get to say no. You get to negotiate the price, but the sale itself is mandatory. One of the strangest things about land from a financial perspective is that it's the only major asset class that the IRS says cannot lose value. Cars depreciate. Equipment depreciates. Buildings depreciate. The IRS allows you to deduct the declining value of a building over its useful life, which they define as 27.5 years for residential rental properties and 39 years for commercial ones. Every year you own a rental property, you can write off a portion of the building's value as a "phantom expense," a paper loss that reduces your taxable income even though you didn't actually spend any money that year.

But the land underneath the building? You can't depreciate it because the IRS considers land a non-wasting asset. Buildings wear out. Roofs need replacing. Furnaces break. Dirt doesn't. It just sits there, and in most cases, it appreciates in value over time rather than losing it, which is why real estate investors care so much about location: the building is a depreciating structure you can write off on your taxes, but the land beneath it is where the long-term value lives.

This creates a tax strategy that's one of the biggest advantages in real estate investing. When you buy an investment property, you separate the purchase price into two buckets: land value and building value. Since you can only depreciate the building, you want to allocate as much of the purchase price to the building as the IRS will allow. If you buy a rental property for $400,000 and allocate $100,000 to land and $300,000 to the building, you can depreciate that $300,000 over 27.5 years, giving you roughly $10,900 per year in tax deductions, money that comes directly off your taxable rental income even though the property might be going up in value. You're collecting rent, the property is appreciating, and the IRS is letting you claim it's losing value on paper. When people say real estate is one of the best tax-advantaged investments in America, this is mostly what they're talking about.

And if you renovate the property, those improvement costs get their own depreciation schedule on top of the building's. New roof, new kitchen, new HVAC system, each one gets added to your depreciable basis and generates additional annual deductions. You can pour money into improving a property, deduct those improvements over time, and simultaneously increase the property's market value, which means you're being rewarded twice: once by the tax code and once by the market. The deeper question underneath all of this is one that most people never ask because the answer is uncomfortable: how did anyone come to own land in the first place?

In the United States, the answer traces back to the Land Ordinance of 1785, which created the Public Land Survey System, a method for dividing the land west of the original thirteen colonies into sellable plots. Surveyors divided the territory into a grid of six-mile-by-six-mile squares called townships, which were subdivided into 36 sections of 640 acres each. The government sold these sections to settlers, speculators, and developers, and the grid lines they drew in the 1780s are still visible today in the rectangular county borders that cover most of the Midwest and West.

But the land the government was dividing and selling wasn't empty. It was occupied by Indigenous peoples who had lived on it for thousands of years and who operated under entirely different concepts of land relationship, many of which didn't include the idea of individual ownership of the ground itself. The government's ability to survey, divide, and sell that land was backed by military force and treaties that were frequently negotiated under coercion or broken outright. The entire foundation of American land ownership rests on a transfer of control that the original inhabitants didn't voluntarily agree to, which is a historical reality that doesn't fit neatly into a conversation about property taxes and depreciation schedules but is impossible to leave out of a conversation about who owns the land and why. Every property line, every deed, and every tax assessment in the country runs on a shared agreement that the lines drawn centuries ago are permanent. They work because everyone agrees they work. But they've been redrawn before, and they can be redrawn again. My friend mows that government-owned strip of grass every week because it's inside their fence and it would look bad if they didn't. They maintain land they don't own, pay taxes on the land they do, and if they ever stop paying, they lose both. That's land ownership in America, and the more I looked into it, the less the word "ownership" felt like the right one.

Stay informed, stay curious, and we'll see you tomorrow.